Accounting for financial instruments in corporate treasuries

Abstract

The purpose of this thesis is to demonstrate the need for enhanced accounting methodology for financial instruments which are traded in the global financial markets. The thesis proposes an accounting framework within which the value-at-risk of financial instruments can be disclosed in the financial statements of enterprises. The thesis considers accounting developments in recent years and analyses the latest proposals suggested by international accounting bodies. It furthermore contemplates the requirements of the Bank for International Settlements in terms of capital adequacy and value-at-risk requirements. In order to provide a meaningful analysis of the subject matter of financial instruments, the various market risks pertaining to the accounting of financial instruments are discussed and considered in terms of their application to the underlying bu. siness of the enterprise. - Extensive analysis is done of valuation techniques and the mathematical concepts of value-atrisk. In this regard the pioneering works of professor Philippe Jorion of the University of California is used to illustrate the application of value-at-risk. The objective of this comprehensive analysis of value-at-risk is to suggest a meaningful method to account for risk exposures in financial instruments and ensure greater transparency in terms of disclosure. In this regard the thesis follows the guidelines proposed by the International Accounting Standards Committee in terms of recognition (definitions}, measurement (valuation}, presentation (classification} and disclosure (terms, conditions and accounting policies} of financial instruments. Consideration is also given to global accounting harmonisation and a number of accounting concerns which are presently unresolved. In this regard certain hedge issues as well as the differences between accrual accounting and fair value accounting are considered. Disclosure requirements are analysed in detail, especially in respect of value-at-risk accounting. Finally, the thesis illustrates the significant growth of products and instruments in the financial markets and the severe financial impact it has in terms of global capital and global financial losses.